Coca Cola shares plunge on deteriorating risk sentiment

Coca Cola shares plunge on deteriorating risk sentiment
Written by:
Stanko Iliev
30th October, 21:41
Updated: 30th October, 21:42
  • Total revenue has decreased by 8.4% Y/Y in Q3 while non-GAAP EPS was $0.55
  • The business of Coca Cola is still struggling to recover to pre-Covid levels
  • If the price falls below $45 that would be a “sell” signal and we have the open way to $40

Coca-Cola shares (NYSE: KO) has weakened from $60 below $37 in less than nine months and the current price stands around $48. Some analysts still see the valuation of Coca-Cola at bubble levels but despite this, Coca- Cola could be a very good opportunity for short-term traders who are trading with “stop-loss” and “take profit” orders.

Fundamental analysis: The business of the company is impacted by the coronavirus Covid-19 pandemic

The Coca-Cola Company is an American multinational beverage corporation headquartered in Atlanta. The main business of this company is the manufacturing, retailing and marketing of nonalcoholic beverage concentrates and syrups.

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The company is well known for its famous drink Coca-Cola and for the fact that it has increased dividends each year for 57 years. Coca Cola has released Q3 earnings results, total revenue has decreased by 8.4% Y/Y while Q3 non-GAAP EPS was $0.55.

The business of the company is impacted by the coronavirus Covid-19 pandemic environment and business is still struggling to recover to pre-Covid levels. Coca-Cola reported that organic revenue fell 6% in Q3 and the company lost value share in total non-alcoholic ready-to-drink beverages.

Coca-Cola CEO James Quincey said that the company has not seen demand return to pre-pandemic levels, even in markets where the coronavirus is mostly under control. The company is cutting jobs and it will create new operating units focused on regional and local execution.

This is a part of the overall reorganization and Coca-Cola will offer employees an option to take a voluntary separation package. Despite this analysts lifted the FY20 EPS estimate to $1.90 vs. $1.88 consensus and FY21 EPS estimate to $2.13 vs. $2.09 consensus.

It is also important to mention that some fund managers have a buy rating on KO and a price objective of $55 which is a little optimistic in my opinion. If we compare total stockholders’ equity of $20.3B and the market capitalization of $206B, we can notice that this stock is overvalued and maybe it is not the best moment to invest in Coca-Cola shares.

Technical analysis: Bulls are focused on breaking the resistance level at $50

Data source: tradingview.com

On this chart, I marked important resistance and support levels. The important support levels are $45 and $40, $50, $55 and $60 represent the resistance levels. If the price jumps above $50 it would be a signal to buy Coca-Cola shares and we have the open way to $55.

Rising above $60 supports the continuation of the bullish trend and the next price target could be located around $65. On the other side, if the price falls below $40 it would be a strong “sell” signal and we have the open way to $36.

Summary

If we compare total stockholders’ equity of $20.3B and the market capitalization of $206B, we can notice that this stock is overvalued and maybe it is not the best moment to invest in Coca-Cola shares. The business of the company is impacted by the coronavirus Covid-19 pandemic and the next several months will be competitive for the beverage industry. Coca Cola has released Q3 earnings results, total revenue has decreased by 8.4% Y/Y while Q3 non-GAAP EPS was $0.55. The company is cutting jobs and it could face problems with cash flow in the future.

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